There is a big reason experienced dividend investors usually get nervous when a stock’s yield moves into double digits. Although a payout with a double-digit yield can create a lot of income, it can also disappear quickly if the business can’t support it.
Let’s take a closer look at a Canadian dividend stock that’s currently yielding 12.2% and find out whether its fundamentals are strong enough to support that dividend payout in the long run.
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Why Allied’s yield is so high
The stock I’m talking about here is Allied Properties Real Estate Investment Trust (TSX: AP.UN). This real estate investment trust (REIT) owns and operates urban workspace in major Canadian cities, with a large presence in Toronto and Montréal. Its portfolio includes office, retail, and flexible workspace properties.
After tanking by nearly 66% over the last year, AP.UN stock currently trades at $7.15 per share with a market cap of about $1.3 billion. That steep decline has pushed Allied’s annualized yield to 12.2%.
That massive selloff is mainly due to pressure on the business. In the second quarter, Allied’s rental revenue fell 3.1% year-over-year (YoY) to $140.5 million. Its operating income dropped 12.7% YoY as non-renewals, dispositions, lower development fee income, decapitalized operating costs, and a retroactive property tax assessment all weighed on its results.
The payout is where the risk shows up
The REIT’s funds from operations (FFO) dived 31% YoY to $47.5 million in the second quarter, while its adjusted funds from operations (AFFO) dropped 46.9% YoY to $33.7 million.
More importantly for income investors, Allied’s second-quarter AFFO payout ratio reached 104.5%. Its distributions are expected to remain above cash available to Allied in the near term, although that gap should improve as asset-sale proceeds reduce debt and lease-up activity supports the portfolio. For now, the REIT plans to maintain monthly distributions at an annualized rate of $0.72 per unit.
In this case, leverage is another issue to watch. Last quarter, Allied’s net debt-to-annualized adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio stood at 12 times, while its interest coverage ratio was 1.9 times. But the company is targeting a mid-11 times net debt-to-EBITDA ratio by year-end.
What could turn the story around
Even with those risks in the near term, investors with the risk appetite may want to consider this high-yield stock today.
Notably, Allied ended the second quarter with occupied and leased area of 84.4% and 86.7%, respectively, both ahead of expectations. Its total leasing pipeline increased 11% during the quarter and was up 33% from the start of 2026.
Meanwhile, its focus on asset sales could also help. The company completed $243 million of dispositions by the end of the second quarter, with another $78 million firm. That brought its secured year-to-date proceeds to about $321 million. With this, the REIT remains on track toward roughly $500 million of 2026 dispositions, and it plans to use those proceeds to repay debt.
That’s why for investors comfortable with turnaround risk, Allied’s beaten-down unit price and 12.2% yield make its stock interesting today. Still, with AFFO under pressure and payout coverage stretched, that income comes with a significant risk as its recovery now depends heavily on better leasing, successful asset sales, and continued deleveraging.
